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Piramal Enterprises to buy 20% in Shriram Capital for $334M

17 April, 2014

Piramal Enterprises Ltd is buying a 20 per cent stake in Shriram Capital Ltd for Rs 2,014 crore ($334 million) expanding its presence in the financial services space, as per a stock market disclosure on Thursday.

Privately held Shriram Capital is the holding company for the Chennai-based Shriram group’s various financial services units, including Shriram Transport Finance and Shriram City Union Finance besides the two insurance ventures.

Its operating entities have an overall customer base of over 9 million with more than 53,000 employees in 2,600 offices, net profit of Rs 800 crore with assets under management of over Rs 78,000 crore ($13 billion).

Last May Piramal Enterprises had invested Rs 1,636 crore to buy 9.9 per cent of Shriram Transport Finance, one of the listed NBFCs under Shriram Capital.

Ajay Piramal, chairman of Piramal Enterprises, said, “This investment builds our presence in financial services sector and we see long-term shareholder value creation from our partnership with Shriram Capital.”

R Thyagarajan, founder of Shriram Group, said, “Our success over the last four decades has been possible only through strategic partnerships. Piramals’ entry into Shriram Capital is a significant milestone for the financial services businesses to take a quantum leap in the group’s contribution to the community at large.”

UBS was the sole financial advisor to Piramal Enterprises for the transaction.

Amarchand & Mangaldas & Suresh A. Shroff & Co acted as sole legal advisor to Piramal Enterprises while Trilegal was the legal advisor to Shriram Capital for the transaction.

For Piramal Enterprises, this allows the firm to swiftly deploy part of the cash generated from the stake sale in Vodafone India.

Earlier this month, Piramal agreed to sell its entire 11 per cent stake in Vodafone’s Indian arm to Prime Metals Ltd, an indirect subsidiary of Vodafone Group, for Rs 8,900 crore ($1.48 billion), where it netted Rs 3,036 crore in absolute profit from the 52 per cent value growth in its two-year-old investment.

Shares of Piramal Enterprises were trading at Rs 601.85 a unit, up 1.01 per cent on BSE, in a strong Mumbai market on Thursday at 11.13 AM.

The company has an existing presence in NBFC and private equity advisory. 

Valuation 

The latest deal values Shriram Capital at Rs 10,070 crore ($1.67 billion).

Previously private equity major TPG and South African financial services group Sanlam had picked stake in Shriram Capital in 2011.

TPG had bought 15 per cent stake for Rs 761 crore ($170 million, then), as per VCCEdge, the financial research platform of VCCircle. This valued the company at Rs 5,073 crore.

Accounting for the equity dilution in the same year when Sanlam picked 26 per cent in Shriram Capital and the latest transaction, it is now estimated to own around 9 per cent of the firm worth a little over Rs 900 crore, which means it is sitting on unrealised gains of around 18.5 per cent in local currency on its three-year-old investment. However, given the depreciation of the Indian currency, it is underwater in dollar terms, as per VCCircle estimates.

Last year TPG scored a multi-bagger when it sold its 20 per cent stake in Shriram Transport Finance Company, the Chennai-based commercial vehicle financier, in two tranches for $615 million (around Rs 3,400 crore). The deal gave the PE firm 6-7x returns, making it the largest exit in India for the firm after it sold stake in Matrix Laboratories.

TPG Capital paid $100 million or Rs 450 crore for 49 per cent stake in the holding arm of the promoters – Shriram Holdings (Madras) Pvt Ltd – in 2005. In a corporate restructuring, the promoter arm was merged with the public-listed Shriram Transport.

The deal was the first transaction between TPG Capital and the $9 billion Shriram Group, which has interests in various sectors – from financial services to infrastructure to real estate. TPG Capital later invested in a number of Shriram Group companies.

TPG Capital’s exit also paved the way for Piramal Enterprises’ entry, which picked up 10 per cent stake in Shriram Transport.

(Edited by Joby Puthuparampil Johnson)


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Piramal Enterprises to buy 20% in Shriram Capital for $334M

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